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As someone who knows nothing about stocks: why aren't they just auctioned off? Start by selling the highest bidder the amount of stock they bid for, then conti

by crote 6y ago

As someone who knows nothing about stocks: why aren't they just auctioned off? Start by selling the highest bidder the amount of stock they bid for, then continue with the next-highest bidder until the supply is depleted. Wouldn't that guarantee the best value for the company?

necubi 6y ago
That's more or less how a direct listing works. Historically direct listings have been rare, but recently Spotify and Slack have successfully done it. The main downsides (aside from it just being unusual and therefore a bit risky) is that for regulatory reasons the company can't sell new shares this way, so it's just a means to go public and doesn't raise any money. However, once the company is public (and has an established price) nothing is stopping them from doing a secondary offering.
- WrtCdEvrydy 6y ago
  > regulatory reasons the company can't sell new shares this way So can only direct list for a followup, not for an initial? I'd love to issue 1 million shares and just sell them to the pending buy orders on a market.
  - chii 6y ago
    it'd be easy for the company to commit fraud by doing this. That's why it's disallowed. An IPO which is underwritten by sophisticated investors will be assumed to have done due diligence and thus, less likely to be an act of defraud. Hertz tried to sell more shares during their bankruptcy, and needed to ask the SEC for permission (to which the SEC is pretty much denied it).
- hamandcheese 6y ago
  > is that for regulatory reasons the company can't sell new shares this way, so it's just a means to go public and doesn't raise any money. Doesn't the company own shares? I've always assumed that when I get paid stock options or RSUs, they are transferred from "the company". So I would assume that a company could sell shares as part of a direct listing in order to raise money? Otherwise why direct list?
harryh 6y ago
Because rational actors won't submit bids at all in a system designed like that. If they do, they'll almost certainly enter a situation in which they end up owning stock that last traded at a price less than they paid.
marcinzm 6y ago
It's been over a decade since I did auction theory so take what I say with a grain of salt. The bidders would be shaving their bids (ie: paying less than they actually value the stock at) since there's an incentive (ie: profit) to not be the top bidder. Everyone wants to be the last bidder since they get their stock for the lowest price. That probably leads to really unstable dynamics and an inefficient equilibrium. So the company may actually come out with less money than other approaches.
phamilton 6y ago
Google IPO'd with a "dutch auction", which involved all buyers submitting their bid and the opening price was the level in which 100% of stock sold.

by crote 6y ago

necubi 6y ago

That's more or less how a direct listing works. Historically direct listings have been rare, but recently Spotify and Slack have successfully done it. The main downsides (aside from it just being unusual and therefore a bit risky) is that for regulatory reasons the company can't sell new shares this way, so it's just a means to go public and doesn't raise any money. However, once the company is public (and has an established price) nothing is stopping them from doing a secondary offering.

WrtCdEvrydy 6y ago
> regulatory reasons the company can't sell new shares this way So can only direct list for a followup, not for an initial? I'd love to issue 1 million shares and just sell them to the pending buy orders on a market.
- chii 6y ago
  it'd be easy for the company to commit fraud by doing this. That's why it's disallowed. An IPO which is underwritten by sophisticated investors will be assumed to have done due diligence and thus, less likely to be an act of defraud. Hertz tried to sell more shares during their bankruptcy, and needed to ask the SEC for permission (to which the SEC is pretty much denied it).
hamandcheese 6y ago
> is that for regulatory reasons the company can't sell new shares this way, so it's just a means to go public and doesn't raise any money. Doesn't the company own shares? I've always assumed that when I get paid stock options or RSUs, they are transferred from "the company". So I would assume that a company could sell shares as part of a direct listing in order to raise money? Otherwise why direct list?

harryh 6y ago

Because rational actors won't submit bids at all in a system designed like that. If they do, they'll almost certainly enter a situation in which they end up owning stock that last traded at a price less than they paid.

marcinzm 6y ago

It's been over a decade since I did auction theory so take what I say with a grain of salt. The bidders would be shaving their bids (ie: paying less than they actually value the stock at) since there's an incentive (ie: profit) to not be the top bidder. Everyone wants to be the last bidder since they get their stock for the lowest price. That probably leads to really unstable dynamics and an inefficient equilibrium. So the company may actually come out with less money than other approaches.

phamilton 6y ago

Google IPO'd with a "dutch auction", which involved all buyers submitting their bid and the opening price was the level in which 100% of stock sold.